THE COURT ORDERS THAT:

1.      The cross claimants on the second cross claim have leave to amend the amended second cross claim by adding the following paragraph:

“9A.           Further it would  be an abuse of process for any of the parties to the Federal Court proceedings to contend in these proceedings that the subject payments were loans.”

2.      The second cross-claimants pay the costs thrown away by the amendment. 

3.      The first cross-claimants, which include the liquidator, pay the costs of all of the other parties of the motion, including the costs of today. 

THE COURT DIRECTS THAT:

4.      The cross-respondents to the second cross-claim file any amended defence to that cross-claim no later than 2 October 1998.

Note:                Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

EX TEMPORE REASONS FOR JUDGMENT

HIS HONOUR:   In this matter I reserved my decision some weeks ago and I have progressed some way with the preparation of reasons for the conclusions which I will reach.  However, some time after I reserved I received further written submissions from the parties on several issues.  One of the submissions was from the Taxpayer objecting to submissions which had been made on behalf of the trustees on the basis that the matters contended for by the trustees were not the subject of pleading.

In particular, in the course of argument, counsel for the Taxpayer contended that I should find, as was contended in the earlier proceedings, that the payments which were made by Morlea to the Taxpayer were loans, contrary to the determination of Tamberlin J and the Full Court.  The trustees’ response to that contention was that it would be an abuse of process for the parties to the earlier proceedings to invite this Court now to reconsider and possibly reach a different conclusion on the matters which were the subject of that determination.  It was that contention to which objection was taken on behalf of the Taxpayer on the basis that that matter was not pleaded.  Accordingly, the trustees have, by notice of motion filed on 25 September 1998, sought to amend the second cross-claim by adding an allegation that it would be an abuse of process for any of the parties to the Federal Court proceedings - by which is meant the earlier proceedings - to contend in these proceedings that the subject payments were loans.

I am not sure that, as a matter of pleading, it is appropriate that that matter be asserted in chief.  On one view, the proper course would be for the Taxpayer to raise the matter by way of answer to the claim that the payments were made by way of loan.  The appropriate reply would then be that it would be an abuse for the Taxpayer to raise that matter by way of answer to the allegation that the payments were not a breach of fiduciary duty.  Be that as it may, by making the amendment it makes perfectly clear that the parties are at issue as to whether or not the Taxpayer is entitled to contend before me that the payments in question were loans.

The part played by the Taxpayer and the liquidator has been somewhat unusual, as I have indicated in earlier interlocutory judgments given in the proceedings.  In its original cross-claim, the Taxpayer asserted that the relevant transactions were loans and that the Commissioner was estopped from contending otherwise.  However, in May 1998, the Taxpayer indicated that it no longer wished to pursue the matters in the cross-claim.  In the event, the participation of the Taxpayer in the proceedings was diametrically opposed to the position which it had taken in the initial pleadings.

Following the amendment to the Taxpayer’s claim, the Taxpayer’s position was simply not to admit the allegations made by the trustees in the second cross-claim.  However, on the morning of the hearing, the Taxpayer and the liquidator indicated that they were no longer taking an inactive position in relation to the second cross-claim but proposed actively to oppose it.  That is how the matter was conducted.

Throughout the submissions, it had been my understanding that there was an issue as to whether or not the Taxpayer and the Commissioner would be entitled to argue that the payments were in fact loans.  The Commissioner made his position clear early.  He indicated that he did not wish to make any contention that I should depart from the findings made in the earlier proceedings and advanced other reasons why the trustees were not entitled to succeed.  However, I was invited by counsel for the Taxpayer to come to a different conclusion, on the basis of the evidence before me, from that which had been reached in the earlier proceedings.  It is in response to that contention or invitation that the trustees raise the matter which is now the subject of the proposed amendment.

While correspondence between the parties in the last few days or weeks indicates that the Taxpayer opposed the proposed amendment, I was informed this morning that the Taxpayer now no longer opposes nor consents to the amendment.  In the circumstances, I consider that justice requires that the amendment be allowed.  It is an amendment which, having regard to the way in which the proceedings were conducted, ought to have been made by consent.  However, the Taxpayer expressly required the trustees to make an application formally by notice of motion and that is the reason why the matter is now before me.

In the circumstances, I think it is appropriate that the Taxpayer pay the costs of all of the parties of the notice of motion including the cost of today.  To the extent that any costs are thrown away by the amendment, they should be borne by the trustees.  I would not expect that the costs thrown away would be other than fairly nominal.

Associate:

Dated:              30 September 1998